The IMF files: Is US denying China a bigger voice

WASHINGTON: China might have to wait longer to enjoy a bigger voice at the International Monetary Fund (IMF), the world’s foremost lender of last resort, thanks to a US proposal that’s gaining traction among the IMF’s 190 members. The review of IMF quotas — the money that member countries commit to the multilateral body — was one of the main topics on the agenda at the annual meetings of the IMF and the World Bank Group this week in Marrakech, Morocco.

Sidestepping growing clamour from China and other emerging countries for a larger shareholding in the IMF, the US has proposed an “equiproportional” increase in IMF quotas. That means member countries should make higher contributions in proportion to their existing quotas without expecting a change in their voting shares, which were last revised in 2010.

US Treasury Secretary Janet Yellen said in Marrakech the US was committed to a new “fair and simple” quota formula that reflects the economic size of IMF members, but “regrets that agreement on a new formula” remains elusive. “In the absence of a new formula, an equiproportional increase is the only viable outcome that avoids arbitrarily picking winners and losers,” Yellen said. The IMF says it needs more money to continue extending financial help to needy countries in a world that’s becoming increasingly prone to geopolitical and environmental shocks. Quotas contributed by IMF members account for more than 40% of the Fund’s lending basket, with bilateral and multilateral borrowing making up the rest.

Quotas are a reliable and predictable source of funding, a reason why IMF members repeatedly reiterate the need to boost quota contributions and reduce the institution’s reliance on borrowed funds. The last increase in quotas was agreed in 2010 and took effect six years later.

Countries like China, India and Brazil agree that the IMF’s lending pot needs to grow with larger contributions from its members — especially given the lender’s key role as the first responder to global economic shocks, as seen during the COVID-19 pandemic and the war in Ukraine. But they have also been pitching for a proportionate rise in voting rights to reflect their growing economic clout.

“Quotas determine voting power and voting power has to add up to 100%. If somebody rises, somebody has to go down. Even if people agree that certain countries deserve to go up, nobody’s willing to pay for that increase,” Mark Sobel, US chairman at OMFIF think tank and a veteran US Treasury official, told DW. “In a way, it’s a microcosm of geopolitical power and rivalries.”

IMF Managing Director Kristalina Georgieva has been backing quota reforms that would redistribute shareholdings at the IMF to reflect the growth of China and other emerging countries. In Marrakech, she called on members to set a deadline for the realignment of the shareholding structure, Reuters news agency reported.

Experts say the US’s reluctance for a quota reform that includes a realignment of voting shares stems from concerns that such an exercise would inevitably give more voting power to China. China accounts for about 18% of the global economy, yet it enjoys just a little over 6% of the IMF’s voting share. This discrepancy means Beijing would be the biggest beneficiary of a quota realignment.

Currently, the US is the biggest shareholder with a 16.5% share, effectively giving it veto power since major decisions need 85% approval.